Hard Rock Café (Makati City), Inc. v.

CIR,
CTA Case No. 9279, July 12, 2018
CABARET MEANING
The Supreme Court defined a cabaret as a
place of amusement where customers go
because of their desire to dance and where
the “bailarinas” are the main attraction.
Dancing is the main business and customer
patronize the place attracted by the
“bailarinas.” As a matter of fact, “bailarinas”
are the indispensable factor in the
operation of the business. (Chuico v. CIR)
NIGHT CLUB MEANING
On the other hand, the Supreme Court
defined a night club as “a place or
establishment selling to the public food or
drinks, where the customers are allowed to
dance.” (CIR v. Junior Women’s Club of the
Philippines)
COMMON ACTIVITY OF A CABARET VIS-À-
VIS A NIGHT CLUB
It appears from the definitions that the
primary and common activity to cabarets,
night and day clubs is dancing. In the said
places, the customers are allowed to dance
either with their own partners or with
professional hostesses provided by the
cabarets or clubs.
MAIN BUSINESS OF A CABARET AND A
NIGHT CLUB TO BE SUBJECTED TO THE 18%
PERCENTAGE TAX UNDER SEC. 125(B) OF
THE TAX CODE
The following should be established in
order to be classified as a Cabaret or
Night/Day Club under Sec. 125(b) of the
Tax Code:
1. The operations of the taxpayer involve
dancing as the main business; and
2. Customers patronize the place in order to
dance either with their own partners or
with a professional hostesses engaged by
the taxpayer for that purpose.
Not being expressly covered by the terms of
“cabaret” and “night or day club,” pursuant
to RR No. 14-67 and the cited relevant
decisions of the Supreme Court, petitioner
(Hard Rock Café) thus cannot be held liable
for the payment of percentage tax
(amusement tax) under Section 125(b) of
the NIRC of 1997, as amended.
IF THERE IS CONFLICT BETWEEN
ADMINISTRATIVE ISSUANCES AND
JURISPRUDENCE, IT IS THE LATTER WHICH
SHALL PREVAIL
It is undisputed that the definition of
cabarets, night and day clubs in RMC No.
18-2010 is a radical departure from the
previous definition of the said terms. Simply
put, RMC No. 18-2010 unilaterally changed
and expanded or widened the scope or
meaning of the terms cabarets, night and
day clubs as defined under the Tax Code
and in existing jurisprudence.
Further, when there is a conflict between
administrative issuances and jurisprudence,
it is the latter which shall prevail.
As part of the legal system, administrative
issuances must be interpreted and
implemented in a manner consistent with
statutes, jurisprudence, and other rules.
Judicial decisions, though not laws, are
nonetheless evidence of what the laws
mean, and it is for this reason that they are
part of the legal system of the Philippines.
Judicial decisions of the Supreme Court
assume the same authority as the statute
itself. Article 8 of the Civil Code recognizes
judicial decisions, applying or interpreting
statutes as part of the legal system of the
country. But administrative decisions do not
enjoy that level of recognition.
 Casaclang v. CIR, CTA Case No. 9091,
August 6, 2018
SALARIES AND EMOLUMENTS RECEIVED BY
FILIPINO EMPLOYEES OF THE ADB ARE
SUBJECT TO INCOME TAX
Provisions of the ADB-related treaties
evidently provide for tax exemption of the
salaries and emoluments paid by the ADB to
its officers and employees, but the same
also contains a proviso wherein a member-
country, such as the Philippines, may
choose to retain its right to tax the salaries
and emoluments paid by the ADB to its
citizens or nationals.
If the Philippine Government intended to
exempt the salaries and emoluments that
its citizens or nationals would derive from
the ADB from income tax, a full ratification
of the ADB Charter could have been made,
without retaining its rights to tax its citizens
or nationals.
In absence of a specific grant of tax-
exemption, the salaries and emoluments
received by Filipino employees of the ADB
are subject to income tax.
RMC No. 31-13 should be applied
prospectively in the interest of justice and
equity
While it can be argued that RMC No. 31-13
is a mere interpretation of existing law and
should thus be applied even to the
compensation income of the petitioners for
the calendar year 2012, the Court holds
that it should be applied prospectively in
the interest of justice and equity.
Consequently, the income of resident’s
citizens employed by foreign governments
and/or international organization should
only be subjected to income tax beginning
calendar year 2013, the year RMC No. 31-13
took effect.
 Megabucks Merchandising Corp. v. CIR,
CTA Case No. 9345, August 17, 2018
FLD AND FAN IS NOT VALID FOR FAILURE
TO INDICATE A DEFINITE DUE DATE FOR
PAYMENT BY THE TAXPAYER
An assessment does not only include a
computation of tax liabilities; it also
includes a demand for payment within a
period prescribed. Its main purpose is to
determine the amount that a taxpayer is
liable to pay.
After a careful scrutiny of the subject FLD
and FANs, the Court finds that the
assessment is not valid for failure to
indicate a definite due date for payment by
the taxpayer, which negates respondent’s
demand for payment.
Process Machinery Co. Inc. v. CIR, CTA Case
No. 9217, August 17, 2018
12% VAT SHALL NOT BE IMPOSED TWICE
ON THE SAME TRANSACTION AS A
CONSEQUENCE FOR ISSUING BOTH VAT
INVOICE AND OFFICIAL RECEIPT
Nowhere in Sec. 113(D) does the law allow
the BIR to impose the 12% VAT twice on the
same transaction as a consequence to the
taxpayer who issues both VAT invoice and
official receipt to cover the same.
UPSI Property Holdings, Inc. v. CIR, CTA
Case No. 8860, August 22, 2018
EFFECT IN CASE THE TAXPAYER FAILS TO
PROTEST THE FLD/FAN WITHIN THE
PRESCRIBED PERIOD
Failure to protest the assessment within the
30-day period provided in the former
Section 270 meant that they became final
and unappealable.
It is clear from the law and relevant
regulations, that the failure to file a timely
protest makes the assessment final,
demandable and unappealable.
Petitioner in the instant case claims receipt
of the FLD/FANs on August 16, 2012 but
failed to substantiate nor corroborate the
same with documentary evidence. Thus, it
has lost its right to contest the assessment
before the Court.
On its part, the Court has no jurisdiction
over an assessment which has become final
and unappealble.
FDDA is not equivalent to a FAN
FDDA is not equivalent to a FAN to have the
effect of superseding the latter. An FDDA is
a decision of the Commissioner of Internal
Revenue on a disputed assessment and
clearly differs from the assessment itself.
 Southern Luzon Drug Corporation v. CIR,
CTA Case No. 8941, September 7, 2018
VAT IS IMPOSED WHEN ONE SELLS, NOT
WHEN ONE PURCHASES
Clearly, VAT can be imposed only when it is
shown that the taxpayer received an
amount of money or its equivalent from its
sale, barter, or exchange of goods or
properties, or from sale or exchange of
services, and not when there are under-
declared purchases.
In other words, VAT is imposed when one
sells, not when one purchases.
At this juncture, it must be pointed out that
in order to stand the test of judicial
scrutiny, the assessment must be based on
actual facts. The presumption of
correctness of assessment being a mere
presumption, cannot be made to rest on
another presumption. Hence, assessments
should not be based on mere presumptions
no matter how reasonable or logical said
presumptions may be.
As such, respondent’s conclusion that
petitioner undeclared sales arising from
said alleged undeclared purchases cannot
be enforced against petitioner; lest,
petitioner shall be taxed arbitrarily.
Accordingly, the deficiency VAT assessment
on the alleged undeclared purchases should
be cancelled and withdrawn.
Proctor & Gamble Asia, Pte. LTD v. CIR,
CTA Case No. 7683, September 6, 2018
IN ORDER TO BE CONSIDERED AS NON-
RESIDENT FOREIGN CORPORATION DOING
BUSINESS OUTSIDE THE PHILIPPINES
In order to be considered as non-resident
foreign corporation doing business outside
the Philippines, each entity must be
supported, at the very least, by BOTH:
a. SEC Certificate of Non-Registration; and
b. Proof of incorporation/registration in a
foreign country and that there is no other
indication which would disqualify said entity
in being classified as a non-resident foreign
corporation.
RS De Vera Trucking v. Commissioner of
Customs, CTA Case No. 9521, September 6,
2018
PROPERTY SUBJECT TO SEIZURE
PURSUANT TO CUSTOMS MODERNIZATION
& TARIFF ACT (CMTA)
Trucks should be forfeited unless it is shown
that the same:
1. Are Common Carriers;
2. Not Chartered or Leased; and
3. Owner or its agents had no knowledge of
the unlawful act.

Miffi Logistics Co., Inc. v. CIR, CTA Case No.

9122, August 1, 2018
COURT OF TAX APPEALS HAS
JURISDICTION IF THE WARRANT OF
DISTRAINT AND LEVY (WDL) ISSUED BY THE
BIR IS VALID
In the case of Philippine Journalists, Inc. v.
CIR, the Supreme Court affirmed the
jurisdiction of the CTA and clarified the
term “other matters.”
The Supreme Court said that the wording of
the provision is clear and simple. It gives the
CTA the jurisdiction to determine if the
warrant of distraint and levy issued by the
BIR is valid and to rule if the Waiver of the
Statute of Limitations was validly effected.
In addition, the Supreme Court has
pronounced that the appellate jurisdiction
of the CTA extends to matters that are
under the administration of the BIR such as
the determination of the validity of a
compromise agreement which is subsumed
under the phrase “other matters.”
WDL is invalid because it stems from a void
assessment
It is well established that a void assessment
bears no fruit.
Noteworthy is the provision in the 1997
NRC which cites the three instances where
a collection case may be filed in court
without a corresponding assessment, i.e.,
a. Filing of false return;
b. Filing of fraudulent return; and
c. Failure to file a return.
Unfortunately, not of the three instances
was established in this case, hence the
validity of the mode of collection is
intimately linked with the validity of the
assessment.

Orient Overseas Container Line Ltd.,

(Philippines), Inc v. CIR, CTA Case No. 9179,
August 2, 2018
CHIEF OF LTS-RLTAD II IS NOT AUTHORIZED
TO ISSUE AND SIGN A LETTER OF
AUTHORITY (LOA)
Revenue Memorandum Order (RMO) No.
43-90
For the proper monitoring and coordination
of the issuance of Letters of Authority, the
only BIR officials authorized to issue and
sign Letters of Authority are enumerated as
follows:
a. Regional Directors;
b. Deputy Commissioners;
c. Commissioner;
d. Exigencies of the service, other officials
may be authorized to issue and sign Letters
of Authority but only upon prior
authorization by the Commissioner himself.
RMO No. 43-90 provides that any
reassignment or transfer of cases to
another revenue officers shall require the
issuance of a new LOA
RMO No. 43-90 provides that any
reassignment or transfer of cases to
another revenue officers shall require the
issuance of a new LOA.
Be that as it may, the Court is of the view
that the same would not necessarily negate
the authority of the CIR and his duly
authorized representatives to effect
amendment or modification of a previously-
issued LOA instead of just issuing a new one
in order for the assessment of a taxpayer to
validly proceed.
RMO is merely an internal issuance, as
such, they do not grant any vested right to
any taxpayer over any particular work
procedure
RMO is merely an internal issuance
containing directives or instructions
outlining procedures, techniques, methods,
processes, operations, activities, work flow
and the like which are necessary to carry
out programs or to achieve policy goals and
objectives.
As such, they do not grant any vested right
to any taxpayer over any particular work
procedure, which procedure is internal to
the BIR and may change from time to time
as the exigencies of service may require, or
as may be allowed given particular factual
contexts, provided only that due process or
statutory rights are not subverted.
CIR v. Gaw, Jr., CTA EB No. 1601, Sep. 20,
2018
RATIONALE AND EFFECTS OF LACK OF
VERIFICATION AND CERTIFICATION
AGAINST FORUM SHOPPING
In Shipside Incorporated v. Court of Appeals,
the Supreme Court discussed the rationale
and effects of lack of verification and
certification against forum shopping in this
wise:
1. Verification of a pleading
The Court has consistently held that the
requirement regarding verification of a
pleading is formal, not jurisdictional (Uy v.
Landbank, G.R. No. 136100, July 24, 2000).
Such requirement is simply a condition
affecting the form of the pleading, non-
compliance with which does not necessarily
render the pleading fatally defective.
Verification is simply intended to secure an
assurance that the allegations in the
pleading are true and correct and not the
product of the imagination or a matter of
speculation, and that the pleading is filed in
good faith.
The Court may order the correction of the
pleading if verification is lacking or act on
the pleading although it is not verified, if
the attending circumstances are such that
strict compliance with the rules may be
dispensed with in order that the ends of
justice may thereby be served.
2. Certification against non-forum shopping
On the other hand, the lack of certification
against forum shopping is generally not
curable by the submission thereof after the
filing of the petition.
Section 5, Rule 45 of the 1997 Rules of Civil
Procedure provides that the failure of the
petitioner to submit the required
documents that should accompany the
petition, including the certification against
forum shopping, shall be sufficient ground
for the dismissal thereof.
The same rule applies to certifications
against forum shopping signed by a person
on behalf of a corporation which are
unaccompanied by proof that said signatory
is authorized to file a petition on behalf of
the corporation.
From the foregoing, it follows that while the
requirement regarding verification of a
pleading is merely formal and not
jurisdictional in nature; the lack of
certification against form shopping is
generally not curable by the submission
thereof after the filing of the petition and
shall be sufficient ground for the dismissal
thereof.
San Miguel Brewery Inc v. CIR, CTA EB No.
1772, September 19, 2018
THE LAW INTENDS THE COURT OF TAX
APPEALS TO HAVE EXCLUSIVE
JURISDICTION TO RESOLVE ALL TAX
PROBLEMS INCLUDING THE
CONSTITUTIONALITY OR VALIDITY OF A
TAX LAW OR REGULATION
As aptly held by the Supreme Court in the
En Banc case of Banco De Oro, et. al. v.
Republic, to wit:
The Court of Tax Appeals has undoubted
jurisdiction to pass upon the
constitutionality or validity of a tax law or
regulation when raised by the taxpayer as a
defense in disputing or contesting an
assessment or claiming refund. It is only in
the lawful exercise of its power to pass
upon all matters brought before it, as
sanctioned by Section 7 of Republic Act No.
1125, as amended.
This Court, however, declares that the
Court of Tax Appeals may likewise take
cognizance of cases directly challenging the
constitutionality or validity of a tax law or
regulation or administrative issuance
(revenue orders, revenue memorandum
circulars, rulings).
Sec. 7 of Republic Act No. 1125, as
amended, is explicit that, except for local
taxes, appeals from the decisions of quasi-
judicial agencies (Commissioner of Internal
Revenue, Commissioner of Customs,
Secretary of Trade and Industry) on tax-
related problems must be brought
exclusively to the Court of Tax Appeals.
In other words, within the judicial system,
the law intends the Court of Tax Appeals to
have exclusive jurisdiction to resolve all tax
problems. Petitions for writs of certiorari
against the acts and omissions of the said
quasi-judicial agencies should, thus, be filed
before the Court of Tax Appeals.
Republic Act No. 9282, a special and later
law than Batas Pambansa Blg. 129 provides
an exception to the original jurisdiction of
the Regional Trial Courts over actions
questioning the constitutionality or validity
of tax laws or regulations. Except for local
tax cases, actions directly challenging the
constitutionality or validity of a tax law or
regulation or administrative issuance may
be filed directly before the Court of Tax
Appeals.
Furthermore, with respect to administrative
issuances (revenue orders, revenue
memorandum circulars, or rulings), these
are issued by the Commissioner under its
power to make rulings or opinions in
connection with the implementation of the
provisions of internal revenue laws. Tax
rulings, on the other hand, are official
positions of the Bureau on inquiries of
taxpayers who request clarification on
certain provisions of the National Internal
Revenue Code, other tax laws, or their
implementing regulations. Hence the
determination of the validity of these
issuances clearly falls within the exclusive
appellate jurisdiction of the Court of Tax
Appeals under Section 7(1) of Republic Act
No. 1125, as amended, subject to prior
review by the Secretary of Finance, as
required under Republic Act No. 8424.

Hedcor Sibulan, Inc. v. CIR, CTA EB No.

1641, September 19, 2018
THE DATES OF ISSUANCE OF THE
CERTIFICATE OF COMPLIANCE (COC) FROM
THE ENERGY REGULATORY COMMISSION
(ERC) IS RELEVANT IN DETERMINING
WHETHER OR NOT THE TAXPAYER HAS
ZERO-RATED SALES PURSUANT TO SEC.
108(B)(7) OF THE NIRC AND SEC. 4.108-3(F)
OF REVENUE REGULATIONS (RR) NO. 16-05
Specifically, both new and existing
generation facilities are required to secure a
Certificate of Compliance (COC) from the
ERC before it can operate the facilities used
for generation of electricity, as provided
under Rule 5, Section 4(a) of the
Implementing Rules and Regulations of RA
No. 9136.
As correctly pointed out by the
Commissioner of Internal Revenue (CIR),
the COCs were issued on May 24, 2010 and
August 9, 2010. The dates of issuance of the
COCs are especially relevant in determining
whether Hedcor has zero-rated sales for the
1st quarter of 2010.
In input VAT refund claims related to zero-
rated sales, what is significant is the period
when the alleged zero-rated sales were
made, and not the period when the input
tax was paid
The instant claim for refund covers input
tax incurred for the 3rd quarter of 2008
allegedly attributable to zero-rated sales for
the 1st quarter of 2010. Both these periods
come before the issuance of either COC for
Plant A or B.
However, contrary to the CIR’s reckoning,
what is significant is the period when the
alleged zero-rated sales were made, and
not the period when the input tax was paid.
Thus, the 1st quarter of 2010, covering the
months of January to March 2010, clearly
came before the issuance of the COCs on
May 24, 2010 and August 9, 2010. Applying
the ruling in the Toledo case, the sales for
the 1st quarter of 2010 were conducted
prior to the issuance of the COC and does
not qualify for zero-rating and therefore,
Hedcor is not entitled to the refund of input
VAT attributable to said sales.
Although the COCs were eventually issued,
the privilege of VAT zero-rating did not
retroact to cover the 1st quarter of 2010.
Napoles v. People, CTA EB Crim No. 037,
September 19, 2018
REMEDY FROM THE DENIAL OF A MOTION
TO QUASH
A preliminary consideration in this case
relates to the propriety of the chosen legal
remedies availed of by the petitioner in the
lower courts to question the denial of his
motion to quash. In the usual course of
procedure, a denial of a motion to quash
filed by the accused results in the
continuation of the trial and the
determination of the guilt or innocence of
the accused.
If a judgment of conviction is rendered and
the lower court’s decision of conviction is
appealed, the accused can then raise the
denial of his motion to quash not only as an
error committed by the trial court but as an
added ground to overturn the latter’s
ruling. (Excerpt taken from the case of
Soriage v. Briones & People)
Petition for Review is not the proper
remedy from a denial of Motion to Quash
An appeal from an interlocutory order is not
allowed under Section 1(b), Rule 41 of the
Rules of Court. Neither can it be a proper
subject of a petition for certiorari which can
be used only in the absence of an appeal or
any other adequate, plain and speedy
remedy. The plain and speedy remedy upon
denial of an interlocutory order is to
proceed to trial as discussed above.
(Excerpt taken from the case of Soriage v.
Briones & People)
Considering the above consistent ruling of
the Supreme Court, filing an appeal before
the Court En Banc via Petition for Review is
not the proper remedy from a denial of
motion to quash. Even this Court would
treat the Petition for Review as a petition
for certiorari via Rule 65 of the Rules of
Court, in grave abuse of discretion cases,
certiorari is appropriate only if the
petitioner can establish that the Third
Division issued Resolutions without or in
excess of jurisdiction or with grave abuse of
discretion, and the remedy of appeal would
not afford adequate and expeditious relief.
The petitioner carries the burden of
showing that the attendant facts and
circumstances fall within any of the cited
instances. Thus, a direct resort to a special
civil action for certiorari is an exception
rather than the general rule, and is a
recourse that must be firmly grounded on
compelling reasons.
ICONIC BEVERAGES, INC. V. CIR, CTA EB
NO. 1563, SEPTEMBER 18, 2018
PASSIVE INCOME
In the case of Chamber of Real Estate and
Builders Associations, Inc. v. The Hon.
Executive Secretary Alberto Romulo, et al.,
the Supreme Court had the occasion to
explain that the BIR defines passive income
by stating what it is not:
Section 57(A) expressly states that final tax
can be imposed on certain kinds of income
and enumerates these as passive income.
The BIR defines passive income by stating
what it is not:
“If the income is generated in the active
pursuit and performance of the
corporation’s primary purposes, the same is
not passive income.”
It is income generated by the taxpayer’s
assets. These assets can be in the form of
real properties that return rental income,
shares of stock in a corporation that earn
dividends or interest income received from
savings.
The determination of whether or not the
royalty income is passive income is directly
related to whether the income is
generated in the active pursuit and
performance of the corporation’s primary
purpose
It is apparent from the Supreme Court’s
pronouncement that before the tax rates
provided in Section 24(B)(1) of the 1997
NIRC may apply to royalty income, it is
necessary to determine whether the royalty
income is indeed passive income.
Furthermore, the determination of whether
or not the royalty income is passive income
is directly related to whether the income is
generated in the active pursuit and
performance of the corporation’s primary
purpose.
An examination of the evidence presented
shows that Iconic’s income subject of the
assessment arose from a License
Agreement with SMBI for the latter’s use of
certain Domestic IP Rights of Iconic, as
contained in a License Agreement.
Said IP Rights are likewise included in
Iconic’s AFS as part of its assets in the
amount of P10,000,000,000.00. The AFS of
Iconic for the taxable years ended
December 31, 2010 and December 31, 2009
likewise indicate that the said income from
royalties in the amounts of
P1,112,710,572.00 and P856,063,257.00,
respectively, is the main source of income
of petitioner for both taxable years 2010
and 2009.
Clearly, Iconic’s AFS for taxable years 2010
and 2009 is in consonance with Iconic’s
primary purpose in its Amended Articles of
Incorporation, part of which is “to own,
purchase, license and/or acquire such
trademarks and other intellectual property
rights necessary for the furtherance of its
business.”
Accordingly, there is factual basis to
conclude that Iconic generated its royalty
income in active pursuit and performance
of its primary purpose.
Clearly, the assessment for deficiency
income tax on the royalty income earned in
the active pursuit of its trade or business for
taxable year 2010 must be upheld.
Taxpayer should signify in its return the
intention to elect the optional standard
deduction
Iconic also claims that the 40% Optional
Standard Deduction (OSD) should be
applied in computing its tax liability, and
that under such computation, Iconic would
have no liability for deficiency income. This
argument is without merit considering that
Iconic did not elect to use the OSD in its ITR.
A taxpayer should signify in its return the
intention to elect the optional standard
deduction. Otherwise, the taxpayer shall be
considered to have availed of the other
deductions allowed in Section 34 of the
1997 NIRC.
CIR V. BLOAT AND OGLE, INC., CTA EB NO.
1578, SEPTEMBER 18, 2018
Section 228 of THE 1997 NIRC PROVIDES
THAT THE SIXTY-DAY PERIOD SHALL BE
RECKONED FROM THE DATE OF FILING OF
THE PROTEST
Counted from January 28, 2011 which is the
date the protest was filed with the BIR, the
submission of the supporting documents on
March 29, 2011 is well within the sixty-day
period mandated by law. In fact, March 29,
2011 is the sixtieth day counted from
January 28, 2011.
Note that Section 228 of the 1997 NIRC
provides that the sixty-day period shall be
reckoned from the date of filing of the
protest which in this case was on January
28, 2011.
Thus, with the filing of the timely protest
and its relevant supporting documents, the
FANs did not become final, executory and
demandable.
Final decision of the CIR which is
appealable to the Court of Tax Appeals
In spite of the variety of decisions on what
may be treated as final decision appealable
to this Court, the unifying rule is that there
must be finality in the tenor of the language
which should be communicated
unequivocally to the taxpayer.
In short, the taxpayer must be made aware,
in no uncertain terms, that its protest has
been denied giving the impression that
recourse to the courts becomes a necessity.
In the case of CIR v. Isabela Cultural
Corporation, the Supreme Court ascribed
importance to the wordings used in the
letter and the “thereat” of collection to
determine whether or not the letter is to be
considered as the final decision.
In CIR v. Ayala Securities Corporation and
the Honorable Court of Tax Appeals, the
Supreme Court made mention that finality
is to be construed on the letter’s reiteration
of the assessment issued against the
taxpayer and the subsequent demand for
its immediate payment.
In the questioned letter dated June 19,
2013, the Court found that the words
“otherwise, we shall be constrained to
enforce collection thereof through
administrative summary remedies” coupled
with the words “without further notice”
signify finality leaving the taxpayer with no
recourse but to seek judicial redress to
restrain or at least delay the collection
efforts of the BIR.
Delegability of some of the powers of the
Commissioner of Internal Revenue
includes the power to sign demand letters
Sec. 7 of the 1997 NIRC authorizes the
Commissioner of Internal Revenue to
delegate the powers vested in him by law to
subordinate officials with the rank
equivalent to a division chief or higher.
The Supreme Court, in the case of Oceanic
Wireless Network v. CIR, et al., has
recognized the delegability of some of the
powers of the Commissioner of Internal
Revenue which includes the power to sign
demand letters issued to delinquent
taxpayers and the Court quote:
“As amended by Republic Act No. 8424,
Section 7 of the Code authorizes the BIR
Commissioner to delegate the powers
vested in him under the pertinent
provisions of the Code to any subordinate
official with the rank equivalent to a
division chief or higher, except the
following:”
“It is clear from the above provision that
the act of issuance of the demand letter by
the Chief of the Accounts Receivable and
Billing Division does not fall under any of
the exceptions that have been mentioned
as non-delegable.”
Hence, it can be deduced that the Chief of
the Collection Division has authority to sign
the FDDA, hence the same is appealable to
the Court of Tax Appeals.
Mandatory character of the issuance of the
PAN
The Supreme Court in the case of CIR v.
Metro Star Superama affirms the
mandatory character of the issuance of the
PAN and links its non-issuance to the
invalidity of the tax assessments.
Having established that respondent never
received the PAN, the events that came
thereafter became irrelevant such as the
issuance of the FANs, the filing of the
protest, the submission of supporting
documents and the issuance of the FDDA.
A void assessment bears no valid fruit.
 CALAUAG V. PEOPLE, CTA EB CRIM NO.
047, SEPTEMBER 17, 2018
ELEMENTS IN ORDER TO PROVE THAT
ARTICLE 255 OF THE NIRC OF 1997, AS
AMENDED, WAS VIOLATED
1. The taxpayer is required under the NIRC
of 1997 to pay any tax, make a return, keep
any record, or supply correct and accurate
information, or withhold or remit taxes
withheld, or refund excess taxes withheld
on compensation, at the time or times
required by law or rules and regulations;
2. The taxpayer failed to pay the required
tax, make a return or keep the required
record, or supply the correct and accurate
information; and
3. The taxpayer willfully failed to pay such
tax, make such return, keep such record, or
supply such correct and accurate
information, or withhold or remit taxes
withheld, or refund excess taxes withheld
on compensation, at the time or times
required by law or rules and regulations.
Third element: “Willfully” means with
knowledge and voluntariness, and with
intentional violation of a known legal duty
Compilation of Relevant Court of Tax
Appeals (CTA)
“An act or omission is ‘willfully’ done, if
done voluntarily and intentionally and with
the specific intent to do something the law
forbids, or with the specific intent to do
something the law forbids, or with the
specific intent to fail to do something the
law requires to be done; that is to say, with
bad purpose to either disobey or to
disregard the law.
A willful act may be described as one done
intentionally, knowingly, and purposely,
without justifiable excuse, as distinguished
from an act done carelessly, thoughtlessly,
heedlessly, or inadvertently. A willful act
differs essentially from a negligent act. The
one is positive and the other negative.”
Moreover, ‘willfulness’ in tax crimes has
been simply defined as:
“Willful in the tax crime statutes means a
voluntary, intentional violation of a known
legal duty and bad faith or bad purpose
need not be shown.”
In the case at bar, what is more significant
and revealing is that petitioner Calauag, in
declaring that she had an income tax
return, betrays herself. In this instance,
petitioner Calauag implicitly admits that she
was are of her duty to file a tax return, and
yet failed to do so. This expresses her
conscious and deliberate failure to file the
subject return, thus proving the third
element of the crime charged.
Importance of substantiating the
taxpayer’s expenses or deductions
Absence of any competent evidence to
substantiate petitioner’s claim that she
actually incurred expenses in relation to her
transactions with the BSP, there can be no
allowable deductions in this case.
In criminal cases, the action for the
recovery of civil liability for taxes and
penalties is deemed jointly instituted in
the criminal action
In criminal cases, the action for the
recovery of civil liability for taxes and
penalties is deemed jointly instituted in the
criminal action.27 Thus, the judgment in a
criminal case shall not only impose the
penalty, but shall also order payment of the
taxes subject of the criminal case.2
CITY OF DAVAO V. ROXAS SHARES, INC.,
CTA EB NO. 1654, SEPTEMBER 17, 2018
LIMITATIONS ON THE TAXING POWER OF
THE LOCAL GOVERNMENT UNIT (LGU)
The power of the petitioner City of Davao to
tax is subject to the limitations provided in
the Constitution and such other laws as the
Congress may provide, which in this
particular case is R.A. No. 7160, or the Local
Government Code (LGC), as amended.
Sec. 133 of the LGC of 1991 expressly
prohibits local government units from
imposing taxes, fees or charges of any kind
on the National Government, its agencies
and instrumentalities, and local government
units.
Dividends and any income derived by the
shares owned by the government is not
subject to local business tax
Subject shares are owned by the
government, it follows that the dividends
and any income derived therefrom are
owned by the government as well,
regardless of who has possession thereof.
The cited jurisprudence was categorical and
clear, and any interpretation is certainly
unnecessary.
A fortiori, the imposition of local business
taxes on respondent for the third and
fourth quarters of year 2011 on the
dividends arising from its SMC shares and
interests on money market placements was
therefore erroneously and illegally made by
petitioners.
Interest and dividends are subject to the
local business tax only if the same is
earned by banks and other financial
institutions
From the definitions as provided for under
the Local Government Code (LGC), a local
government unit, such as respondent City
of Davao, can only impose business tax only
on banks and other financial institutions
pursuant to Section 143(f) of the LGC of
1991, which includes non-bank financial
intermediaries, per Section 131(e) of the
LGC.
Definition of a “non-bank financial
intermediary”
Section 22(W) of the National Internal
Revenue Code (NIRC) of 1997, as amended,
defines the term “non-bank financial
intermediary,” as follows:
“(W) The term 'non-bank financial
intermediary' means a financial
intermediary, as defined in Section 2(D)(c)
of Republic Act No. 337, as amended,
otherwise known as the General Banking
Act, authorized by the Bangko Sentral ng
Pilipinas (BSP) to perform quasi-banking
activities.”
In relation thereto, Section 4 of R.A. No.
337, as amended by P.D. No. 1828, states
that the Monetary Board has the authority
to determine whether a person or an entity
is:
(a) Performing banking or quasi-banking
functions, or
(b) Engaged in other types of financial
intermediation, subject only to judicial
review.
As applied to this case, the record is barren
of any indication that respondent was
authorized by the Banko Sentral ng Pilipinas
(BSP) to perform quasi-banking activities as
a non-bank financial intermediary pursuant
to Section 22(W) of the NIRC of 1997, as
amended.
The record also indicates that there is no
sufficient evidence showing that
respondent is a non-banking financial
intermediary as found by the Monetary
Board pursuant to Section 4 of R.A. No. 337.
Non-banking financial intermediaries
include a person or entity performing any
of the functions of a financial intermediary
The Supreme Court defined the term
“financial intermediaries” as persons or
entities whose principal functions include
the lending, investing or placement of funds
or evidence of indebtedness or equity
deposited with them, acquired by them, or
otherwise coursed through them, either for
their own account or for the account of
others.
On the other hand, “non-banking financial
intermediaries” include a person or entity
performing any of the functions of a
financial intermediary, including, holding
assets consisting principally of debt or
equity securities such as promissory notes,
bills of exchange, mortgages, stocks, bonds,
and commercial papers. Furthermore, the
person or entity must perform the afore-
mentioned functions on a regular and
recurring basis, and not on an isolated
basis.
Applying the foregoing definitions, there is
no showing that respondent is engaged in
“lending, investing or placement of funds or
evidences of indebtedness or equity
deposited with them, acquired by them, or
otherwise coursed through them, either for
their own account or for the account of
others,” in order to be within the ambit of
the term “Financial intermediaries/non-
bank financial intermediaries” as defined
similarly in
i (i) Section 2(D)(c) of R.A. 337, or the
General Banking Act, as amended,
i (ii) Section 2.3 of Revenue Regulations
(RR) No. 9-2004, and
i (iii) Section 4101Q.1 of the Manual of
Regulations for Non-Bank Financial
Institutions of the Banko Sentral ng
Pilipinas.
There is likewise no indication in the record
that respondent is engaged in these
functions “on a regular and recurring basis,
and not on an isolated basis.”
Articles of incorporation, standing alone, is
insufficient to prove that the taxpayer is
performing the functions of a financial
intermediary
The Court held in the case at bar that it is
not persuaded that respondent’s primary
purpose as stated in its Articles of
Incorporation, standing alone, is sufficient
to prove that respondent is performing the
functions of a financial intermediary.
Certainly, it cannot be assumed that
respondent is engaged in activities as a non-
bank financial institution or intermediary
based its primary purpose as stated in its
Articles of Incorporation.
That respondent earned income from the
subject SMC shares, or that it is a private
entity organized for profit, will likewise not
automatically lead to a conclusion that it is
a non-bank that it is a non-bank financial
intermediary as alleged by petitioner. Most
private corporations are aimed at earning
profit, but are not “financial intermediaries”
or “non-banking financial intermediaries”
under the law.
Without any convincing evidence to prove
that respondent falls under this category of
business, respondent cannot be taxed as
such.
CIR V. LUDO & LUYM CORP., CTA EB CASE
NO. 1559, JUNE 8, 2018
DOCUMENTS SUBMITTED BY THE
TAXPAYER SHOULD BE PRE-MARKED OR
OFFERED AS EVIDENCE TO FORM PART OF
THE RECORD OF THE CASE
As noted by the Court in Division, the
documents submitted by respondent and
used by the ICPA were not pre-marked or
offered as evidence. Hence, they were not
admitted as forming part of the records of
the case.
Thus, the Court in Division aptly ruled that
the disallowance of the fictitious expenses
arising from bank overdrafts in East West
and iBank accounts is valid.
Requisites for Deductibility of Interest
Expense
Section 3 of RR 13-2000, implementing
Section 34 (B) of the National Internal
Revenue Code (NIRC) of 1997, as amended,
provides the requirements for deductibility
of interest expense, to wit:
SECTION 3. Requisites for Deductibility of
Interest Expense. — In general, subject to
certain limitations, the following are the
requisites for the deductibility of interest
expense from gross income, viz.:
(a) There must be an indebtedness;
(b) There should be an interest expense
paid or incurred upon such indebtedness;
(c) The indebtedness must be that of the
taxpayer;
(d) The indebtedness must be connected
with the taxpayer's trade, business or
exercise of profession;
(e) The interest expense must have been
paid or incurred during the taxable year;
(f) The interest must have been stipulated
in writing;
(g) The interest must be legally due;
(h) The interest payment arrangement must
not be between related taxpayers as
mandated in Sec. 34(B)(2)(b), in relation to
Sec. 36(B), both of the Tax Code of 1997;
(i) The interest must not be incurred to
finance petroleum operations; and
(j) In case of interest incurred to acquire
property used in trade, business or exercise
of profession, the same was not treated as
a capital expenditure."
Accrual of income and expense is
permitted when the all-events test
The Court in Division explained that the
accrual of income and expense is permitted
when the all-events test, i.e., the right to
income or liability should be fixed and that
the amount of such income or liability be
determined with reasonable accuracy, is
met.
It held that the accrual method relies upon
the taxpayer's right to receive amounts or
its obligation to pay them, in opposition to
actual receipt or payment, which
characterizes the cash method of
accounting.
Amounts of income accrue where the right
to receive them become fixed or where
there is created an enforceable liability.
Similarly, liabilities are accrued when fixed
and determinable in amount, without
regard to the indeterminacy merely of the
time of payment.
Under the accrual method of accounting,
respondent recorded its interest expense in
the total amount of P223,794,203.46 on the
date of their occurrence, and not on the
date in which they were actually paid for.
Thus, petitioner-appellee complied with the
requirement that there should be an
interest expense paid or incurred upon its
indebtedness.
The indebtedness must be connected with
the taxpayer's trade, business or exercise
of profession
A review of the records shows that the
taxable year of the unaudited financial
statements and the date of the promissory
notes supporting the loans obtained were
different. Further, the unaudited financial
statements do not provide adequate
disclosures. Hence, they cannot be used as
tools to determine if the loans were used in
its trade or business.
At any rate, respondent proffered its
Memorandum of Agreement and
Promissory Notes. Upon closer scrutiny,
some of the said promissory notes revealed
that some of the loans were working capital
loans. However, the other promissory notes
presented do not indicate the purposes of
the loans.
Based on Section 3 of Revenue Regulations
No. 13-2000, respondent failed to comply
with the 4th requisite for the deductibility
of interest expense. In other words,
respondent failed to prove that the
indebtedness is connected with its trade or
business.
In the absence of proof of substantially
underdeclared sales, receipt or income, the
presumption of falsity of returns cannot be
applied
Under Asalus, the presumption of falsity
arises when there is a showing that a
taxpayer has substantially underdeclared its
sales, receipt or income.
In the instant case, there is no showing that
respondent has substantially underdeclared
its sales, receipt or income. Meanwhile, the
presumption of falsity of returns cannot
arise by mere assertion that the former
commissioner imposed surcharge against
respondent. Hence, in the absence of proof
of substantially underdeclared sales, receipt
or income, the presumption of falsity of
returns cannot be applied. Therefore,
respondent had only three (3) years to
assess respondent's deficiency VAT under
Section 203 of the NIRC of 1997, as
amended.
Considering the foregoing, the Court En
Banc sees no cogent reason to disturb the
Court in Division's conclusion that
petitioner's right to assess respondent's
deficiency VAT had already prescribed.

NIKKEN PHILIPPINES INC. V. CIR, CTA EB

CASE NO. 1569, JUNE 7, 2018
ANY REASSIGNMENT/TRANSFER OF CASES
TO ANOTHER RO(S), AND REVALIDATION
OF L/AS WHICH HAVE ALREADY EXPIRED,
SHALL REQUIRE THE ISSUANCE OF A NEW
L/A
Revenue Memorandum Order ("RMO") No.
43-90 26 provides as follows:
Any reassignment/transfer of cases to
another RO(s), and revalidation of L/As
which have already expired, shall require
the issuance of a new L/A, with the
corresponding notation thereto, including
the previous L/A, with the corresponding
notation thereto, including the previous L/A
number and date of issue of said L/As.
Basic is the rule in statutory construction
that the use of the word "shall" connotes a
mandatory order. Its use in a statute
denotes an imperative obligation and is
inconsistent with the idea of discretion.
Where the law is clear and unambiguous, it
must be taken to mean exactly what it says,
and courts have no choice but to see to it
that the mandate is obeyed. Hence, the use
of the word "shall" in RMO No. 43-90 can
only mean that the issuance of a new LOA is
mandatory in cases of reassignment.
Clearly, before an assessment can be
conducted, the RO conducting the same
must first be authorized to do so, pursuant
to an LOA issue by the Revenue Regional
Director. In case of re-assignment or
transfer of cases to another RO, a new LOA
with a corresponding notation thereto must
be issued.
As held in the case of CIR v. Sony
Philippines, Inc., clearly, there must be a
grant of authority before any revenue
officer can conduct an examination or
assessment. Equally important is that the
revenue officer so authorized must not go
beyond the authority given. In the absence
of such an authority, the assessment or
examination is a nullity.
Memorandum of Referral should be signed
by a Revenue Regional Director in order to
be valid
Even if the Memorandum of Referral will be
taken into consideration, it will still not be
valid since it was signed not by the Revenue
Regional Director but by the Revenue
District Officer, in contravention of the
provisions of the law.
Thus, RO Lim acted without authority when
he conducted the audit of petitioner, hence,
the assessment is null and void.
Accordingly, a void assessment bears no
valid fruit.

CARMEN COPPER CORP. V. CIR, CTA EB

CASE NO. 1461, JUNE 6, 2018
ESSENCE OF FORMAL OFFER OF EVIDENCE
In the case of Dizon v. CTA, the Supreme
Court discussed the essence of formal offer
of evidence in deciding a case on the merit
and ruled that failure to comply with the
rule on admissibility of evidence is fatal to
the party's cause.
To emphasize its import, the Supreme Court
quoted the relevant portion of the ruling in
the case of Heirs of Pedro Pasag v. Parocha,
thus:
“A formal offer is necessary because judges
are mandated to rest their findings of facts
and their judgment only and strictly upon
the evidence offered by the parties at the
trial. Its function is to enable the trial judge
to know the purpose or purposes for which
the proponent is presenting the evidence.
On the other hand, this allows opposing
parties to examine the evidence and object
to its admissibility. Moreover, it facilitates
review as the appellate court will not be
required to review documents not
previously scrutinized by the trial court.”
Section 34 of Rule 132 of the Rules of Court
explicitly directs the Court to consider in
the resolution of the case or incident only
exhibits formally offered in evidence
Section 34 of Rule 132 of the Rules of Court
explicitly directs the Court to consider in the
resolution of the case or incident only
exhibits formally offered in evidence.
Precisely, party-litigants are required to
formally offer their evidence and cite their
purpose or purposes not only for the
appreciation and evaluation of the Court
but also to allow the adverse party to
interpose objection/comment thereon. It
has been ruled that strict adherence to the
rule is not a trivial matter.
It must be noted that petitioner was even
given a second chance to prove its case
when the Court in Division allowed the
reopening of the case for the presentation
of additional documents to sufficiently
prove its actual shipments of good from the
Philippines to a foreign country.
Petitioner however fell into complacency,
forgetting the need to formally offer the
documents presented by its witness which
in the first place were mere photocopies of
the alleged bills of lading of the subject
shipments.
Hence, the motion for reconsideration filed
by petitioner Carmen Copper Corporation
was dismissed, for lack of merit.
Formal offer of one's evidence is deemed
waived after failing to submit it within a
considerable period of time
The Court in Constantino v. Court of Appeals
ruled that the formal offer of one's
evidence is deemed waived after failing to
submit it within a considerable period of
time. It explained that the court cannot
admit an offer of evidence made after a
lapse of three (3) months because to do so
would "condone an inexcusable laxity if not
non-compliance with a court order which,
in effect, would encourage needless delays
and derail the speedy administration of
justice.
Applying the aforementioned principle in
this case, the Court found that that the trial
court had reasonable ground to consider
that petitioners had waived their right to
make a formal offer of documentary or
object evidence.
Despite several extensions of time to make
their formal offer, petitioners failed to
comply with their commitment and allowed
almost five months to lapse before finally
submitting it. Petitioners' failure to comply
with the rule on admissibility of evidence is
anathema to the efficient, effective, and
expeditious dispensation of justice.
SAN MIGUEL HOLDINGS CORP. V. CIR, CTA
CASE NO. 9401, JUNE 5, 2018
PROSPECTIVE APPLICATION OF DECISIONS
APPLIES ONLY IN CASES WHERE AN OLD
DOCTRINE OF THE SUPREME COURT IS
OVERRULED BY A SUBSEQUENT DECISION
WHICH ADOPTS A NEW DOCTRINE
In the case of Brewery Properties, Inc. v.
Commissioner of Internal Revenue, this
Court stated that the Supreme Court's
interpretation of Section 180 of the NIRC
(now Section 179 of the NIRC of 1997) in
the Filinvest case constituted as part of the
NIRC as of December 23, 1994, since said
section was already inserted in the NIRC
through the enactment of Republic Act (RA)
No. 7660, to wit:
“In the Filinvest case, what was interpreted
by the High Court is Section 180 of the
NIRC, particularly on the scope of the word
'loan agreements' as being subject to DST,
in that it includes 'instructional letters as
well as the journal and cash vouchers
evidencing the advances of [Filinvest]
extended to its affiliates.' Said Section 180
was inserted in the NIRC, through the
enactment of RA No. 7660 on December 23,
1994; and it is still in our statute books up
to this time. Parenthetically, it must be
noted that the same Section 180 was
carried over in the Republic Act (RA) No.
8424, otherwise known as the 'Tax Reform
Act of 1997'; and while the said Section 180
was later amended via the enactment of RA
No. 9243 on February 17, 2004, the
imposition of DST on loan agreements is
retained in the present Section 179 of the
NIRC of 1997, as amended by said RA No.
9243.
Thus, the said interpretation in the Filinvest
case constituted as part of the NIRC as of
said date, i.e., December 23, 1994, up to
the present time.”
It is worthy to note that prospective
application of decisions applies only in cases
where an old doctrine of the Supreme Court
is overruled by a subsequent decision which
adopts a new doctrine. In such situation,
the new doctrine must be applied
prospectively. In the present case, however,
there is no previous doctrine that is
overruled by the doctrine in the Filinvest37
case.
Considering that the interpretation of
Section 180 of the NIRC (now Section 179 of
the NIRC of 1997) in the Filinvest case was
deemed constituted as part of the NIRC as
of December 23, 1994 up to the present
time, the same may therefore be applied to
this case without violating the principle on
non-retroactivity of laws and rulings.
DST may be imposed even in the absence
of a debt instrument, as long as the
transactions are clearly established
In the case of CIR v. Filinvest Development
Corporation, the Supreme Court held that
DST may be imposed on the advances on
the basis of a mere Note appearing in the
AFS, as follows:
"DST is levied on the exercise by persons of
certain privileges conferred by law for the
creation, revision, or termination of specific
legal relationships through the execution of
specific instruments. DST is by nature, an
excise tax since it is levied on the exercise
by persons of privileges conferred by law. A
DST is a tax on documents, instruments,
loan agreements, and papers evidencing
the acceptance, assignment, sale or transfer
of an obligation, right or property incident
thereto.
The DST is actually an excise tax, because it
is imposed on the transaction rather than
on the document. Thus, there is no basis for
petitioner's assertion that a DST is literally a
tax on the document. In other words, DST
may be imposed even in the absence of a
debt instrument, as long as the transactions
are clearly established.
In cases where no formal loan agreements
or promissory notes have been executed to
cover credit facilities, the documentary
stamp tax shall be based on the amount of
drawings or availment of the facilities,
which may be evidenced by credit/debit
memo, advice or drawings by any form of
check or withdrawal slip, under Section 180
of the Tax Code.”
If the record is bereft of any evidence that
petitioner filed a DST return for the subject
period or for the subject transactions, the
ten-year (10 year) prescriptive period
applies
Sec. 222(a) of the NIRC, as amended, states
that in case of failure to file a return, the tax
may be assessed at any time within ten (10)
years after the discovery of the omission.
In the case at bar, since the record is bereft
of any evidence that petitioner filed a DST
return for the subject period or for the
subject transactions, the ten-year
prescriptive period applies. Clearly
therefore, the assessment has not yet
prescribed when respondent issued the
PAN.
Deletion of the imposition of surcharge,
interest, and compromise penalty
In the case of Trustmark Holdings
Corporation (Trustmark) v. CIR, the CTA
ruled that from the foregoing rulings of the
BIR and CTA/CA issued prior to Filinvest
case promulgated on July 19, 2011, the
taxpayer cannot be faulted if it relied on
these rulings and believed in good faith that
intercompany advances covered by board
resolution, office memo, instructional letter
and/or cash and journal vouchers or similar
documents are not subject to DST.
Furthermore, the Supreme Court also held
in the case of Michael J. Lhuillier Pawnshop
Inc. v. CIR that that the settled rule is that
good faith and honest belief that one is not
subject to tax on the basis of previous
interpretation of government agencies
tasked to implement the tax law, are
sufficient justification to delete the
imposition of surcharges and interest.
Applying the foregoing, the Court is
convinced that petitioner acted in good
faith when it believed that intercompany
advances are not subject to DST prior to the
2011 Filinvest case. After all, it was based
on numerous rulings of the BIR that
intercompany advances are not subject to
DST. Moreover, the CA and CTA, the
specialized body handling tax cases, also
had similar rulings. Hence, petitioner
cannot be faulted if it relied in good faith on
these rulings.
Based on the above-cited case, and
considering petitioner's good faith in relying
on previous court decisions and BIR rulings
and its payment of the deficiency DST albeit
under protest, the deletion of the
imposition of surcharge and interest in the
instant case is also proper.
As to the compromise penalty, the payment
under protest made by petitioner signifies
that there was no agreement reached
between the parties, hence, the same must
not be imposed as well.
COLGATE-PALMOLIVE PHILIPPINES INC. V.
COMMISSIONER OF CUSTOMS, CTA EB
CASE NOS. 1471 & 1475, JUNE 4, 2018
ROYALTIES ARE DUTIABLE ONLY WHEN
THEY RELATE TO THE GOODS BEING
VALUED
Royalties are dutiable only when they relate
to the goods being valued. This is clear in
Section 201 of the TCCP, and in Customs
Administrative Order ("CAO") No. 4-2004,41
amending CAO No. 5-2001,42 implementing
the said Section 201, which provide as
follows:
41 Amendment to Customs Administrative
Order 5-2001 (Implementing Republic Act
9135: An Act Amending Certain Provisions
of Presidential Decree No. 1464, Otherwise
Known as the Tariff and Customs Code of
the Philippines, As Amended (Customs
Code), And for Other Purposes), November
8, 2004.
42 Implementing Republic Act 9135: An Act
Amending Certain Provisions of Presidential
Decree No. 1464, Otherwise Known as the
Tariff and Customs Code of the Philippines,
As Amended (Customs Code), And for Other
Purposes, November 16, 2001.
SEC. 201. Basis of Dutiable Value. — (A)
Method One. — Transaction Value. — The
dutiable value of an imported article subject
to an ad valorem rate of duty shall be the
transaction value, which shall be the price
actually paid or payable for the goods when
sold for export to the Philippines, adjusted
by adding:
(1) The following to the extent that they are
incurred by the buyer but are not included
in the price actually paid or payable for the
imported goods:
xxx xxx xxx
(e) The amount of royalties and license fees
related to the goods being valued that the
buyer must pay, either directly or indirectly,
as a condition of sale of the goods to the
buyer;
In the instant case, the amount of royalties
paid by CPPI to CPC is computed based on
CPPI's net sales of licensed products
consisting of imported finished goods and
locally manufactured products. Meanwhile,
the raw materials used for the production
of locally manufactured products were
sourced from both Colgate and non-Colgate
entities.
Clearly, the Php1,249,810,687.75 royalty
paid by CPPI is not representative of the
amount of royalty related to the goods
imported. Accordingly, only the equivalent
amount of sales of importations from CPC
shall be the dutiable royalty.
The CTA cannot impose the penalty to pay
the correct customs duties since there is no
showing that the administrative
procedures were followed
As there is no showing that the
administrative procedures were duly
followed and considering petitioner's
vehement contention that it did not receive
a complaint on the supposed determination
of imposable penalties on its failure to pay
the correct customs duties from the Legal
Service of the BOC, the Court cannot
impose said penalty for petitioner's right to
due process will be violated.
Truth to tell, even in the administrative
proceedings, due process may not be
ignored because it is not merely a statutory
right but a constitutional right. Indeed, our
Constitution provides that "no person shall
be deprived of life, liberty, or property
without due process of law", which clause
epitomizes the principle of justice which
hears before it condemns, which proceeds
upon inquiry and renders judgment only
after trial.
ALPHA 245, INC. V. CIR, CTA CASE NO.
9225, JUNE 4, 2018
CONCEPT OF NAKED ASSESSMENT VIS-À-
VIS THE PRIMA FACIE CORRECTNESS OF A
TAX ASSESSMENT
Thus, respondent failed to present evidence
to support the subject assessments. In
Commissioner of Internal Revenue v. Hantex
Trading Co., Inc., the Supreme Court
emphasized the concept of naked
assessment vis-à-vis the prima facie
correctness of a tax assessment, as follows:
"We agree with the contention of the
petitioner that, as a general rule, tax
assessments by tax examiners are
presumed correct and made in good faith.
All presumptions are in favor of the
correctness of a tax assessment. It is to be
presumed, however, that such assessment
was based on sufficient evidence. Upon the
introduction of the assessment in evidence,
a prima facie case of liability on the part of
the taxpayer is made. If a taxpayer files a
petition for review in the CTA and assails
the assessment, the prima facie
presumption is that the assessment made
by the BIR is correct, and that in preparing
the same, the BIR personnel regularly
performed their duties. This rule for tax
initiated suits is premised on several factors
other than the normal evidentiary rule
imposing proof obligation on the petitioner-
taxpayer: the presumption of administrative
regularity; the likelihood that the taxpayer
will have access to the relevant
information; and the desirability of
bolstering the record-keeping requirements
of the NIRC.
However, the prima facie correctness of a
tax assessment does not apply upon proof
that an assessment is utterly without
foundation, meaning it is arbitrary and
capricious. Where the BIR has come out
with a "naked assessment," i.e., without
any foundation character, the
determination of the tax due is without
rational basis. In such a situation, the U.S.
Court of Appeals ruled that the
determination of the Commissioner
contained in a deficiency notice disappears.
Hence, the determination by the CTA must
rest on all the evidence introduced and its
ultimate determination must find support in
credible evidence."
Considering that respondent failed to
adduce evidence to support the subject
assessments, this case, therefore, is a
textbook scenario of a naked assessment as
explained by the Supreme Court in Hantex.
Hence, the denial of the instant motion is in
order.
ZMG WARD HOWELL, INC. V. CIR, CTA
CASE NO. 9004, JUNE 4, 2018
TO PROVE THE ZERO-RATED SALE
TRANSACTION, THE PEZA-REGISTERED
ENTERPRISE AVAILING THE SERVICES
SHOULD BE LOCATED AND OPERATING
WITHIN THE ECOZONE.
In the assailed Decision, this Court ruled
that the sale of services by VAT-registered
person performed within the Philippines to
PEZA-registered entities located and
operating within an ECOZONE is subject to
VAT at zero percent (0%). The Court further
held that there is no need to prove that the
sale of services to PEZA-registered
enterprises are directly connected to their
registered activities.
What is important is that the PEZA-
registered enterprise availing the services is
located and operating within the ECOZONE.
Best proof in order to substantiate that the
PEZA-registered enterprise is located and
operating within the ECOZONE
To support its zero-rated sales of services
for the period covered January 1, 2012 to
June 30, 2012, petitioner presented the
PEZA Certifications of its clients, Stellar
Philippines, Inc. (SPI) 32 and JP Morgan
Chase & Co. — Philippine Global Service
Center.
Also, to substantiate its zero-rated receipts
of P21,764,368.89, petitioner submitted the
official receipts it issued to its clients for the
period covered of the assessment.
 TELSTAR MANUFACTURING CORP. V. CIR,
CTA CASE NO. 8900, JUNE 4, 2018
ANY AGGRIEVED PARTY MAY SEEK
RECONSIDERATION OR NEW TRIAL OF ANY
DECISION, RESOLUTION OR ORDER OF THE
COURT
Under Section 1, Rule 15 of the Revised
Rules of the Court of Tax Appeals (RRCTA),
any aggrieved party may seek
reconsideration or new trial of any decision,
resolution or order of the Court by filing a
motion for reconsideration or new trial
within fifteen (15) days from the date of
receipt of notice of the decision, resolution
or order of the Court in question.
Given that respondent received this Court's
Resolution dated February 8, 2018 on
February 19, 2018, he had until March 6,
2018 within which to file a motion for
reconsideration. Accordingly, the filing of
respondent's Motion for Partial
Reconsideration on March 6, 2018 is well
within the reglementary period.
The procedural lapse was deemed cured
and the intent of the rule was substantially
complied with the filing of the
Comment/Opposition
Neither can this Court subscribe to
petitioner's view that respondent's Motion
for Partial Reconsideration should be
denied for violating the three-day notice
rule provided under Rule 15 of the Rules of
Court. Suffice it to say that this procedural
lapse on the part of respondent is deemed
cured because petitioner was given
sufficient opportunity to oppose the
motion.
This is in line with the pronouncement of
the Supreme Court in Aneco Realty and
Development Corporation v. Landex
Development Corporation, which held that
it is the dire consequences which flow from
the procedural error which is proscribed. If
the opposing party is given a sufficient
opportunity to oppose a defective motion,
the procedural lapse is deemed cured and
the intent of the rule is substantially
complied.
In the above-cited case, the defect of the
motion was absence of any notice of
hearing yet the Supreme Court opted for
the liberal construction of the procedural
rules. With more reason that the alleged
violation of the three-day notice rule in the
present case should be deemed cured by
the grant of opportunity to petitioner to
comment on respondent's Motion for
Partial Reconsideration.
In the Resolution dated March 13, 2018,
petitioner was ordered to comment on
respondent's Motion for Partial
Reconsideration within ten (10) days from
notice. Petitioner received a copy thereof
on March 20, 2018 and filed its
Comment/Opposition (To Respondents
Motion for Partial Reconsideration dated
March 6, 2018) on April 2, 2018.
Clearly, the procedural lapse was deemed
cured and the intent of the rule was
substantially complied with the filing of the
foregoing Comment/Opposition.
The disallowance of the CWT made by the
CIR is void since the FDDA did not provide
a breakdown of the said CWT
This Court also stands by its ruling in the
Assailed Resolution that the disallowance of
creditable withholding tax amounting to
P17,777.44 only came out in respondent's
FDDA and the FDDA did not provide a
breakdown of the disallowed CWT.
Thus, the said item of assessment must be
declared void pursuant to the Supreme
Court's ruling in Commissioner of Internal
Revenue v. Liquigaz Philippines Corporation
and Liquigaz Philippines Corporation v.
Commissioner of Internal Revenue.
 MAX’S STA. MESA, INC. V. CIR, CTA CASE
NO. 8786, SEPTEMBER 28, 2018
THE FACT THAT THE PETITIONER DID NOT
SUBMIT ANY OTHER SUPPORTING
DOCUMENTS AFTER A VALID PROTEST TO
THE FAN/FLD DOES NOT FORECLOSE THE
REMEDY TO APPEAL IT
There is no dispute that the petitioner
(Max’s) filed a valid protest to the FAN/FLD
on February 20, 2013. However, regardless
of whether or not the protest would be
considered a “request for reconsideration”
or a “request for reinvestigation,” the fact
that petitioner did not submit any other
supporting documents thereafter does not
foreclose the remedy of appeal to it.
In Commissioner of Internal Revenue v. First
Express Pawnshop Company, Inc., the
Supreme Court rejected the argument of
the CIR that the assessment had become
final and unappealable by the mere failure
of the taxpayer to submit supporting
documents. It held therein that as long as
respondent has complied with the
requisites in disputing an assessment
pursuant to Section 228 of the Tax Code,
the remedy of appeal is still availing if
perfected within the mandatory and
jurisdictional periods therefore.
The taxpayer may opt to await the final
decision of the Commissioner on the
disputed assessment and said taxpayer can
appeal such final decision to the CTA
within 30 days after the receipt of a copy
of such decision
It is indubitable that the word “final” in the
phrase “the assessment shall become final”
means that the taxpayer is barred from
disputing the correctness of the issued
assessment by introduction of newly
discovered or additional evidence which,
consequently, leads to the FDDA being
denied. It cannot be taken to mean as a bar
to avail the remedy of appeal because the
rules also say that if the taxpayer opts to
await the final decision of the
Commissioner on the disputed assessment,
the taxpayer can appeal such final decision
to the CTA within 30 days after the receipt
of a copy of such decision.
It is, in fact, exactly what happened in the
case at bar. Petitioner filed its protest to the
FLD/FAN on February 20, 2013. Although it
could have appealed to the CTA within 30
days after the expiration of the 180-day
period which would have ended on August
19, 2013, petitioner opted to await the final
decision of respondent which it received on
March 4, 2014. The rules state that
petitioner had 30 days therefrom within
which to file its appeal. Since the Petition
for Review was timely filed on March 21,
2014, the appeal has been perfected and
this Court has jurisdiction over this case.
The non-compliance with statutory and
procedural due process renders the FAN as
null and void even if the taxpayer
protested the formal assessment
In Commissioner of Internal Revenue v.
Metro Star Superama, Inc., the Supreme
Court emphasized the importance of
complying with the requirement to send a
PAN to the taxpayer as an integral part of
due process in the issuance of deficiency tax
assessment. It then declared in no uncertain
terms that the failure of the CIR to strictly
comply with the requirements laid down by
law and its own rules is a denial of the
taxpayer’s right to due process. Undeniably,
providing the taxpayer with a copy of the
PAN is meaningless to the concept of due
process if, after all, his right to respond to it
within the prescribed period would be
ignored.
Also, in Philipinas Shell Petroleum
Corporation v. Commissioner of Internal
Revenue, the Supreme Court ruled that
non-compliance with statutory and
procedural due process renders the FAN as
null and void even if the taxpayer protested
the formal assessment.
The above jurisprudence finds application in
the instant case where the CIR unfairly
surprised petitioner with an FLD/FAN
without waiting for the period within which
petitioner could submit its protest to the
PAN to expire. More egregious is the
obvious fact that respondent did not even
consider the points and arguments
petitioner raised in its protest to the PAN
prior to issuing a decision thereon in the
form of the FLD/FAN.
It is clear from Section 228 of the Tax Code
that the right to respond to a
“preassessment notice” or PAN is given to
the taxpayer, and from RR No. 12-99, that
the period of fifteen (15) days to file said
response is also the taxpayer’s right; they
are not for the CIR to waive. Petitioner’s
right to due process has therefore been
violated and the FAN/FLD is null and void.
PEOPLE V. GERNALE, CTA CRIM CASE NO.
O-336, SEPTEMBER 26, 2018
IF THE TAXPAYER DENIES EVER HAVING
RECEIVED AN ASSESSMENT FROM THE BIR,
IT IS INCUMBENT UPON THE LATTER TO
PROVE BY COMPETENT EVIDENCE THAT
SUCH NOTICE WAS INDEED RECEIVED BY
THE ADDRESSEE
Considering that accused denied having
received the assessment notices from the
BIR, it is incumbent upon the latter to prove
by competent evidence that the notices
were indeed received by GECC. Thus, the
burden of proof is shifted to the BIR to
prove by contrary evidence that GECC
received the assessment notices in the due
course of mail.
In Barcelon Roxas Securities, Inc. (now
known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue, the
Supreme Court held:
“Jurisprudence is replete with cases
holding that if the taxpayer denies ever
having received an assessment from the
BIR, it is incumbent upon the latter to prove
by competent evidence that such notice
was indeed received by the addressee. The
onus probandi was shifted to respondent to
prove by contrary evidence that the
Petitioner received the assessment in the
due course of mail. The Supreme Court has
consistently held that while a mailed letter
is deemed received by the addressee in the
course of mail, this is merely a disputable
presumption subject to controversion and a
direct denial thereof shifts the burden to
the party favored by the presumption to
prove that the mailed letter was indeed
received by the addressee (Republic v. CA,
149 SCRA 351).
Facts to be proved to raise the
presumption that the mailed letter is
deemed received by the addressee
Thus, as held by the Supreme Court in
Gonzalo P. Nava v. Commissioner of Internal
Revenue, 13 SCRA 104, January 30, 1965:
“The facts to be proved to raise this
presumption are
(a) That the letter was properly addressed
with postage prepaid, and
(b) That is was mailed.
Once these facts are proved, the
presumption is that the letter was received
by the addressee as soon as it could have
been transmitted to him in the ordinary
course of the mail. But if one of the said
facts fails to appear, the presumption does
not lie (VI, Moran, Comments on the Rules
of Court, 1963 ed, 56-57 citing Enriquez v.
Sunlife Assurance of Canada, 41 Phil 269).
What is essential to prove the fact of
mailing is the:
(a) Registry receipt issued by the Bureau of
Posts or
(b) Registry return card which would have
been signed by the Petitioner or its
authorized representative.
(c) And if said documents cannot be
located, Respondent at the very least,
should have submitted to the Court a
certification issued by the Bureau of Posts
and any other pertinent document which is
executed with the intervention of the
Bureau of Posts.”
Meanwhile, in the case of Protector’s
Services, Inc. v. Court of Appeals, the
Supreme Court ruled that:
“When a mail matter is sent by registered
mail, there exists a presumption, set for the
under Section 3(v), Rule 131 of the Rules of
Court, that it was received in the regular
course of mail.
The facts to be proved in order to raise this
presumption are:
(a) That the letter was properly addressed
with postage prepaid; and
(b) That it was mailed.
While mailed letter is deemed received by
the addressee in the ordinary course of
mail, this is still merely a disputable
presumption subject to controversion, and
a direct denial of the receipt thereof shifts
the burden upon the party favoured by the
presumption to prove that the mailed letter
was indeed received by the addressee.”
In the case at bar, the plaintiff claims that
the PAN with Details of Discrepancy dated
May 03, 2006 was validly served to GECC
because they were sent via registered mail.
However, it was not able to prove whether
the said PAN was truly mailed. It must be
noted that in her Judicial Affidavit, the
Revenue Officer testified that she prepared
the PAN dated May 03, 2006 and then
transmitted the same to the Administrative
Division, BIR Manila, for mailing to GECC.
And yet, the plaintiff did not present any
registry return receipt or registry return
card to prove mailing for the said PAN to
GECC. Nor was there any person called on
the witness stand to testify as to the fact of
mailing of the PAN.
In other words, from the totality of the
evidence presented by the plaintiff, the two
facts to be proved in order to raise the
presumption in Section 3(v), Rule 131 of the
Rules of Court (i.e. that the letter was
properly addressed with postage prepaid
and was sent), were not properly proven in
this case.
Failure of the BIR to prove receipt of the
PAN leads to the conclusion that no
assessment was validly issued
The Court, in this case, finds that the
evidence of the plaintiff failed to
satisfactorily prove that GECC or any of its
authorized representatives actually
received the PAN. The plaintiff’s witnesses
could not positively testify that the PAN was
actually received by GECC. Hence, the
failure of the BIR to prove receipt of the
PAN by GECC leads to the conclusion that
no assessment was validly issued.
And since the subject assessment is
deemed null and void, it follows therefore
that the PCL, FNLBS and WDL issued to GCC
are void as well. As held in Commissioner of
Internal Revenue v. Reyes, a void
assessment bears no fruit.
PEOPLE V. CAGUIMBAL, CTA CRIM. CASE
NOS. O-546 & O-547, SEPTEMBER 26, 2018
BARE ALLEGATION OF THE ACCUSED THAT
HE DID NOT RECEIVE ALL THE NOTICES
ISSUED BY THE BIR IS NOT SUFFICIENT TO
OVERCOME THE PRESUMPTION THAT THE
NOTICES WERE SENT AND RECEIVED IN THE
ORDINARY COURSE OF MAIL.
The assertions of accused that he did not
receive the notices issued by the BIR and he
does not know the persons who received
the notices, i.e. Louisa Anne Villaruel, Aiza
M. Caiba, Napoleon C. Villaruel, and
Lorraine Abansat, are self-serving
statements.
The bare allegation of the accused that he
did not receive all the notices issued by the
BIR is not sufficient to overcome the
presumption that the notices were sent and
received in the ordinary course of mail.
He never controverted the evidence
presented by the plaintiff that the PAN, FAN
and FLD were mailed and indeed received
by persons on behalf of the accused.
It is basic in the rule of evidence that bare
allegations, unsubstantiated by evidence,
are not equivalent to proof. In short mere
allegations are not evidence.
Admissions made during the hearing of the
case are judicial admissions pursuant to
Section 4, Rule 129 of the Rules of Court
The accused admission that he earned
income and his biggest client is Long Ridge
Construction is in concurrence with the
evidence of the prosecution i.e. BIR Form
1604-E with attached Alphalist of Payees
filed by Long Ridge Construction, Inc. for
taxable year 2010, that Long Ridge
Construction paid to accused in the amount
of P8,389,895.00 for taxable year 2010.
Admissions made during the hearing of a
case or are reduced into writing and signed
by the person making admission are judicial
admissions pursuant to Section 4, Rule 129
of the Rules of Court.
In addition, the accused cannot be
permitted to invoke an excuse that he did
not know that he had to declare his income
with the BIR and that he did not know what
to do. The transactions in this case involve
millions of pesos. It is unbelievable that
accused does not know that he has an
obligation to declare his income and pay
the corresponding taxes.
Ignorance of the law excuses no one from
compliance therewith. The omission on the
part of accused to declare his income and
pay the corresponding taxes, knowing that
he makes money out of his electrical works
business is tantamount to a willful violation
of the provisions of the NIRC.
TRANS-ASIA OIL AND ENERGY
DEVELOPMENT CORP. V. CIR, CTA CASE
NO. 9078, SEPTEMBER 28, 2018
PROPERTY DIVIDEND IS NOT WITHIN THE
AMBIT OF THE TERM “OTHER DISPOSITION
OF SHARES OF STOCK” THAT WOULD
RECOGNIZE GAIN OR LOSS FROM SUCH
DISPOSAL, AS CONTEMPLATED IN RR NO.
6-2008, AS AMENDED BY RR NO. 6-2013
The Court finds that Petitioner’s declaration
and distribution of property dividend is not
within the ambit of the term “other
disposition of shares of stock” that would
recognize gain or loss from such disposal, as
contemplated in RR No. 6-2008, as
amended by RR No. 6-2013.
The term “dividend” both in the technical
sense and its ordinary acceptation, is that
part or portion of the profits of the
enterprise which the corporation, by its
governing agents, sets apart for ratable
division among the holders of the capital
stock. It means the fund actually set aside,
and declared by the directors of the
corporation as dividends and duly ordered
by the director, or by the stockholders at a
corporate meeting, to be divided or
distributed among the stockholders
according to their respective interests.
Dividends comprise any distribution
whether in cash or other property in the
ordinary course of business, even though
extraordinary in amount, made by a
domestic or resident corporation to the
stockholders out of its earnings or profits.
Property dividend consists of a portion of
corporate property paid to shareholders
instead of cash or corporate stock.
Petitioner’s declaration and distribution of
property dividends to its shareholders in
the form of TAPC shares of stock is not
within the ambit of the term “other
disposition of shares of stock” in RR No. 6-
2008, as amended by RR No. 6-2013.
Instead it is a mere equity transaction since
petitioner did not recognize any gain or loss
therefrom